Reference no: EM133070581

Question - The Seminole Company wishes to apply the Miller-Orr model to manage its cash investment. Seminole's management has determined that the cost of either investing in or selling marketable securities is $200. By looking at Seminole Company's past cash needs, they have determined that the variance of daily cash flows is $10,000. Seminole Company's opportunity cost of cash, per day, is estimated to be 0.05%. Seminole management has figured, based on their experience dealing with the cash flows of the company, that there should be a cushion- a safety stock-of cash of $20,000.

How much is the upper limit based on the Miller-Orr model of cash management?

How much is the lower limit based on the Miller-Orr model of cash management?

How much is the cost per transaction?

How much is the variance of daily cash flows?

How much is the return point based on the Miller-Orr model of cash management?

How much is the opportunity cost of cash, per day?

Buccaneer, Inc., has determined that it needs $10 million in cash per week. If Buccaneer needs additional cash, it can sell marketable securities, incurring a fee of $100 for each transaction. If Buccaneer leaves funds in its marketable securities, it expects to earn approximately 0.2% per week on their investment.

How much is the weekly opportunity cost of cash?

How much is the cost per transaction?

Using the Baumol Model, how much cash should Buccaneer raise from selling securities each week to minimize its costs of cash?

How much is the total demand for cash per week?